Potential Challenges Ahead for the Housing Market in 2024

Political Landscape Shifts May Impact Demand

After the COVID-19 pandemic, the number of single-family homes for sale dropped sharply due to health concerns and stay-at-home orders. This situation created a demand bottleneck, inadvertently benefiting homebuilders as society began to return to normal. However, emerging political changes could raise concerns for the housing market’s future.

President-elect Donald Trump’s campaign for the 2024 election has emphasized anti-immigration rhetoric and proposed tariffs on building materials. These policies could lead to increased construction costs. Higher costs may hurt demand, as many Americans continue to struggle with living paycheck to paycheck.

Sun Belt Cities Show Promise

Despite high mortgage rates, forecasts from Realtor.com suggest that some cities in the Sun Belt could experience significant sales growth in 2025. Texas cities often rank highly for housing demand, with regions like Miami, Virginia Beach, Richmond, and Charlotte displaying potential to rejuvenate interest in homebuilding stocks.

Investors Eye the Direxion ETF

For those optimistic about future market trends, the Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL presents an intriguing investment option. This leveraged exchange-traded fund (ETF) aims to deliver 300% of the performance of the Dow Jones U.S. Select Home Construction Index.

One advantage of a 3X-leveraged fund is its simplicity. Unlike options trading, which can be complex, investors can buy units of NAIL just like shares in a company. This fund includes various securities, featuring companies such as DR Horton Inc DHI and Lennar Corp LEN.

Volatility and Risks Involved

However, investors should note that being a 3X-leveraged ETF, NAIL comes with high volatility risks. Direxion warns that the fund cannot be expected to deliver three times the index’s cumulative return beyond one day. Holding it longer than that may lead to valuation decay from daily compounding effects.

Interestingly, NAIL has shown an upward trend in weekly returns over the past five years. Out of 261 weeks, 146 saw positive returns, giving a success rate of 55.94%. Notably, there were 12 weeks where NAIL lost 20% or more, yet eight of those weeks bounced back with an average gain of 25.55%.

In a significant downturn, the 3X bull fund lost 21.66% of its value during the week ending December 20.

Current Sentiment and Technical Analysis

Even though the NAIL ETF appeared strong until late November, uncertainty caused it to turn negative for the year. Currently, the technical outlook is not promising, with NAIL falling below its 50- and 200-day moving averages in November and December.

• At present, NAIL is trading above the important $80 level, which had provided support during 2021.
• For the bulls, establishing a strong support base here is crucial, particularly given the upward bias observed previously.
• This scenario seems valid, especially after a notable weekly correction.

Image by Oleksandr Pidvalnyi from Pixabay.